The idea of day trading can be alluring. Who wouldn’t want a flexible job with the option to work from anywhere in the world?
Here’s the reality: The lives of most day traders aren’t exactly glamorous, cash-filled movie montages. Day trading often means countless, endless, sometimes monotonous hours in front of a screen. It also means lots of detailed and painstaking research.
And this isn’t necessarily a steady source of income. It can difficult to predict how much you’ll make — or if you’ll make anything at all.
Because trading isn’t really a ‘sure thing’ kind of profession, most newbie day traders start out part-time. That’s not such a bad thing: You can have the flexibility to educate yourself in the markets while hanging onto the security of a steady income.
This post is your guide to trading on a part-time basis. Here’s everything part-time day traders need to know.
Table of Contents
What Is Part-Time Trading?
Defining the difference between a full-time trader and a part-time trader can be tricky.
The reason is that trading doesn’t always follow the traditional trajectory of part-time or full-time employment. Even so-called full-time traders aren’t executing trades one after the other from 9–5 all day every day.
Trading is about quality, not quantity. For me, that can mean that if I don’t find suitable trades, I may not actively trade for days or even weeks at a time. But just because I’m not trading, that doesn’t mean I’m not working. I work constantly, educating myself on potential plays, honing my watchlist, doing research, and generally preparing myself for when opportunities arise.
So to say that someone is a part-time trader doesn’t necessarily refer to how much time they devote to actively executing trades. Rather, part-time trading refers to trading when you have other obligations, say, a full-time job.
Part-time trading isn’t a bad thing. Most traders start out part-time, and some will stay part-time for their entire careers. Since I’m both a trader and a teacher, you could even argue that I’m a part-timer — though my entire career is devoted to trading in one way or another.
Benefits of Part-Time Trading
What are some of the specific benefits of part-time trading? Here are just a few:
- Diversify your career. In traditional long-term investing, diversity is seen as the key to a healthy portfolio. It falls into the “don’t put all your eggs in one basket” territory. An ideal portfolio will likely include a variety of securities in different sectors so that they can act as a series of checks and balances. Diversity is a great thing to embrace not just in trading but also in life. Part-time trading is a great way to diversify your career. By maintaining a job while you try your hand at trading, you can use each endeavor to support the other. Your regular job likely offers consistent income, and that can offer security when you need to pay for stuff … like that mortgage thing and your bills. This can take some of the urgency out of trading so you can approach trades in a calculated way, not out of motivation to get rich quick. Since trading has no guarantees, it may be unwise to pursue it full-time, especially at the beginning of your career. You can’t count on the market, and you can’t count on winning trades. So if have a secure backup, use it to your advantage.
- Explore different trading styles. Part-time trading can also give the freedom to experiment with different types of trading. You want to find the style that works best with your time availability, schedule, and lifestyle, then focus on trading strategy. For example, some traders love the excitement of day trading and can devote lots of off-hours time to studying. They also make time during market hours to execute or use automatic order types. Other traders might find that slower-paced swing trading better suits their hours. Others are drawn to forex trading and its 24/7 availability.
- It rewards routine. Don’t buy into any pressure that you have to be a full-time trader to be legitimate. Here’s what you do need to do: Commit to researching stocks on a regular basis. If you can set up a steady trading routine, you can potentially reach your trading goals even if you have limited time.* Consistency may be even more important than time when it comes to trading. If you devote a few hours a day to detailed stock research, you’re more likely to be ready when the right trade comes along. This approach is better than jumping into trades you know nothing about just because you can.
- You can walk away. If there are no trades … you can close your laptop or shut down your computer and just walk away for a while. If you work in an office with a boss breathing down your neck, you probably don’t have the luxury of walking away or taking a nap when things are slow or if you’re uninspired. As a part-time trader, you can step away if it gets to be too much or you just need a break.
How to Succeed With Part-Time Trading
Whether you’re trading part-time or full-time, you want to work smarter, not harder. Here are some of my best tips for how to make it work:
#1 Most Common Stock Chart Patterns
Even the most accomplished traders usually only trade a few key patterns. If it ain’t broke, don’t fix it, right? Here are two of my favorite stock chart patterns:
- The Supernova: This is by far my favorite chart pattern. Let’s break it down: There’s an explosion in the stock price, then it peaks before it falls. This creates opportunities to sell both on the way up and on the way down. A supernova could be caused by any number of catalysts — world events, earnings, general hype. And because they’re characterized by huge volatility and liquidity, supernovas can be easy to buy and sell short. That’s part of why I love this setup so much … There’s the opportunity to take advantage of big price swings, and there are usually enough people trading that it’s easier to get the entry and exit points you set in your trading plan.
- The Stair Stepper: Here’s another one of my go-to patterns: the stair stepper. This is where a stock has regular bouts of rising and falling in price with plateaus in between. When you look at the chart over time, it vaguely resembles a staircase, either ascending or descending. Once the stair pattern is established it becomes a self-continuing cycle — traders tend to buy in during the steps up and short-sell on the steps down. Of course, I urge a cautious approach for this pattern when the steps become too steep because, as with a real staircase, that’s when you can fall flat on your face.
For more on these stock patterns, check out my guide to penny stocks.
#2 Key Technical Indicators
There are so many technical analysis tools out there that it can be overwhelming. Don’t be tempted to just forget about them. I get it — your time is limited as a part-time trader and you don’t have time for that, right?
Wrong! It’s important to get to know key technical indicators, but you don’t have to use them all.
Rather than trying to master all of them, stick to a few key technical indicators and get really intimate with them. Here are a few key technical indicators that I often use:
- SMA: Short for simple moving average, this indicator shows the daily average over a period of days. You can set it for any period, but 20-day, 50-day, and 200-day averages are common. The SMA can help give you an idea of a stock’s support and resistance levels with a more balanced number because it includes fluctuations over time.
- MACD: The moving average convergence/divergence indicator follows trends and shows you the relationship between two types of moving averages. The goal with MACD is to find fast-moving gains that you can use in short-term trading. To calculate it, subtract the exponential moving average (EMA) from a 12-period EMA to get the MACD line. A line is then placed on top of the MACD line, representing the 9-day EMA. Of course, a stock screener and charting software can do this for you automatically.
- RSI: The relative strength index is an indicator that can help you compare gains and losses so that you can figure out which are greater and by how much. To calculate the RSI, you set a time period — the most common is 14 days. Say that a stock is experiencing seemingly erratic gains and losses. By running the RSI, you can get a better handle on whether the losses or gains are dominant. The RSI goes on a scale from 0-100, with 30 and 70 respectively seen as the underbought and overbought levels. Lots of traders use these lines as indicators of breakouts, which can work. Moreover, the RSI can confirm a trend and its strength. If the trend appears to be weak, it can be a sign of danger, since you don’t know what it might do next. A strong trend generally gives a few signals before reversing.
- Your own experience: Don’t just read about these indicators and then rely solely on them. Time will be your best teacher, and you’ll learn which indicators you like best and which ones are the most informative for your trading style. I strongly urge you to maintain a trading journal to track all the details of your trades. Remember to include which indicators played into your decision to trade or not trade. Over time, you may see trends emerge in your own trading, where certain indicators prove more useful than others.
#3 Mental Preparation
Trading isn’t just about numbers. It’s also about your state of mind.
Even as a part-time trader, you need to devote yourself wholeheartedly to trading. There’s a big difference between trading part-time and trading casually.
Part-time trading on a whim or because you feel like it generally isn’t a solid long-term strategy. Without structure, you can struggle to improve. Your wins will likely be flukes if you don’t devote yourself to true planning and studying the market’s mechanics.
So how do you get into the right mindset? I suggest sticking to a routine or schedule. Maybe it’s a few hours before work each morning, or maybe you set aside time to research every night.
You may be trading part-time, but that’s no excuse to be a part-timer mentally. Take the time to do it right.
#4 Use News Catalysts
Catalysts have the power to move stock prices, so be sure to use them along with your chart research and technical analysis.
A news catalyst can be literally any type of news, directly or indirectly related to the company, that has the potential to move stock prices.
Direct news catalysts: Some news catalysts are directly related to the company in question.
One of the biggest news catalysts is earnings winners (or losers). After the close of each quarter, public companies must release earnings reports. How the company’s earnings stack up to the same quarter last year as well as analyst projections can have a big impact on the stock price.
Earnings that exceed expectations can cause swift and rapid price increases. The reverse can happen when the company doesn’t meet expectations.
A few other examples of catalysts directly relating to companies might include a big contract or partnership or a big new investor. It’s not always certain how much of an effect these things will have on the stock price.
Indirect news catalysts: Sometimes, the news that moves a stock price isn’t directly related to the company or stock in question.
For example, a stock’s value could go up or down based on sympathy plays.
Say that another company in the same sector had a big news catalyst. If it raises the price of a stock — even though it has nothing to do with another company in the same sector — that company’s stock could rise too. All because it’s associated with the other stock by sector.
Here’s another example: A change in government policy can affect a stock’s price. Recently the Farm Bill was passed in the U.S., making it legal to produce hemp on an industrial level.
This news didn’t directly relate to any one company, but it had an effect on all companies involved in the production of CBD. The policy change meant the potential for a much larger consumer base and audience. This caused some rapid spikes in stock prices.
Bottom line: Always keep track of the news, both company-related news regarding the stocks on your watchlist and the world news at large. You never know when something might act as a news catalyst and kick a stock price into a trend.
#5 Set a Specific Time for Your Trades
It’s possible to establish yourself as a trader even if you have full-time obligations. However, when your time is limited, you have to be intelligent about making the most of what you have.
You may not be able to be in front of a trading monitor during the week, especially if you have a traditional 9–5 job. So it’s all about embracing alerts, automation, and having specific plans in place.
Most importantly, make sure that you set aside specific times for doing stock research. Make use of your free time on the weekends, in the mornings, or in the evenings.
If you have a watchlist, dedicate yourself to finding promising candidates. Make trading plans to follow when the time is right. It’s also a good idea to embrace tools like price alerts that can signal you when a watchlist stock price hits your strike zone.
Finally, embrace automation. If you have a trading plan in place, you don’t necessarily need to be at your computer to execute trades. You can set automated orders to buy and sell if and when a security reaches your desired entry or exit points.
A platform like StocksToTrade can be like your own trading personal assistant. The platform can monitor prices for you, and you can place limit orders to buy and put stop losses or trailing stops on your orders to sell if the stock reaches a certain price.
Actually, this can be one of the benefits of part-time trading: limited hours can keep you from over-trading.
Remember: Just because you can trade doesn’t mean you should. Don’t be blinded by FOMO or a need for the adrenaline rush that can come with executing a trade. After trading for a while, you may find which time of day is most valuable for your trading, too.
Key Part-Time Trading Tips
When time is at a premium, you’ve gotta use it wisely. Here are some of my key tips for trading part-time:
Stick to Your Trading Plan
As my students know very well, I’m a fan of having a plan. A trading plan, that is.
The phrase ‘trading plan’ alone should give you a good idea of what it is. It’s a written plan where you plot out a course of action for a given trade.
Everyone will have a slightly different approach to formulating a trading plan. In general, it should include your hypothesis for why the trade is a good idea, a clearly defined goal, and your research to back it up.
You also want to build in the basics, like anticipated entry and exit points. You should decide where you’ll exit if the gains reach your goal and establish a stop loss (whether mental or real) in the event that you need to cut losses.
A trading plan isn’t a guarantee of success, but it can help you approach trades in a balanced way.
It edges you out of the lazy zone — just making a trading plan forces you to do some research. And it can help curb greed. When you predetermine entry and exit points, you’re less likely to give into the ‘hold and hope’ mentality that can make you stay in a position too long.
A trading plan is always a helpful tool, but it’s only effective if you stick to it.
So print out your trading plan, keep it nearby. Tattoo it on your forehead if you need to. Stick to it! When you deviate from the plan and make spur-of-the-moment changes, things can go sour fast. Don’t get greedy and don’t be lazy. Just stick to the plan.
Trade Only Patterns You Master
There are many different patterns out there to trade. If you try to tackle them all, you’ll end up being a jack of all trades, master of none.
One of the best pieces of advice that any trader — whether full-time or part-time — can follow is to stick with a few key patterns. Yes, you want to learn as many patterns as possible. But when it comes to practice, focus on just a few at a time.
Honing your methods with a few key patterns will ultimately help you cultivate a deeper knowledge of each pattern’s subtleties. In short, it can make you a smarter trader.
There’s plenty of time to learn more patterns. The markets will change. That means the opportunity to branch out and try different patterns. Or you may find that your style evolves and you gravitate toward different ones. That’s fine, too.
Don’t Trade Too Big
Not to be a downer, but this is critical: Any amount of money that you put into a trade can potentially be lost. So never trade too big.
Now, what’s ‘too big’ is totally relative. It depends on your style and your account size. But here’s the basic idea: Don’t risk too much of your account on any one trade.
I understand that if you’re just starting out with a small account, you may have a strong desire to build your account fast. It can be tempting to go for big, impactful trades with the small amount of capital you have.
Cool down. It’s OK to focus on small wins. Even if your profit is just $5 after commissions and capital gains, there’s value in that. Small wins can add up over time, and you can increase your positions gradually while gaining invaluable experience.
Never Stop Learning
Money isn’t the only currency involved in trading. In fact, knowledge might be even more valuable.
Trading isn’t the type of career where you can rise up through the ranks with regular advances and promotions. The market is in a constant state of flux that you have to learn to ride and adapt to. Even the tools that traders use are always evolving.
So don’t make the mistake of thinking it’s possible to reach a point where you know everything about trading. That can never happen due to the ever-changing nature of the market.
Rather than fight it, make a commitment to always keep learning. If you can make that commitment and stick with it, you’ll have an advantage over many other new traders right from the beginning.
In committing to be a lifelong student of the market, you can learn to adapt and grow with the market.
I’ve been trading for decades, and I learn new things every day. My students teach me; the news teaches me; stock performance teaches me.
Trading Challenge
Amassing knowledge about the market is be easier said than done. It can be hard to know where to get started and what direction to take.
This is where a little guidance can be helpful.
When I started my trading career, there were no lessons or classes I could take to learn how to be a part-time day trader. I had to learn the hard way: through trial and error.
Now that I’m an established trader, I want to make it easier for new traders who are at the point where I once was. So I created my Trading Challenge.
This isn’t just a textbook trading education. Sure, you’ll learn the basics. But more importantly, you can learn how to put your trading knowledge to work.
Ultimately, my goal isn’t just to help you memorize the difference between the MACD and RSI or to be able to recite different types of trade orders. I don’t want to just be a resource for stock tips (but yes, I share my regular watchlist every Sunday night).
What I want is for you to gain a deeper understanding of the markets by actively engaging in stock research and trading. I want you to become a self-sufficient trader.
The Bottom Line
Regardless of how many hours you can devote to trading, it’s possible to find a positive routine. Even part-time trading has the potential to teach you how to be a smarter trader — as long as you’re dedicated, disciplined, and determined.
However, it’s only through time and practice that you can really hit your stride as a trader. It’s super important to be calculated in your approach. Focus on educating yourself on the market so that you can perfect your techniques over time.
Part-time traders: What’s your routine? Tell me what you love — or loathe — about trading part-time. Leave a comment!
Leave a reply